Neither macro fundamentals nor country’s image impacted by Adani saga: FM

The country’s macroeconomic fundamentals are sound and the cancellation of the follow-on public offer (FPO) by the Adani Group has not impacted the country’s image on the global stage, said Finance Minister Nirmala Sitharaman on Saturday.

“The foreign exchange reserve in the last two days has gone up by $8 billion. So, our macroeconomic fundamentals or our economy’s image, none of which has been affected”, the minister said at a post-budget event in Mumbai.

“Yes, FPOs come in, and FIIs get out. These fluctuations are there in every market, but the fact that we have had $8 billion in the last few days proves that the perception of both India and its inherent strengths, is intact”, she said.

Sitharaman put the onus on the financial sector regulators to do their job in this regard, given they are independent bodies who are responsible for the overall health of the sector.

“You have had the Reserve Bank of India (RBI) comment on it yesterday. And prior to that, not regulators, but the banks and LIC have themselves come out with what their level of exposure is. So, the regulators will do their jobs. And regulators are independent of the government. They are regulators and they are independent, and they are left to themselves to do what is appropriate”, the minister said.

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And actually, for keeping the markets regulated in prime condition, the Sebi is the authority. And it has the wherewithal to keep that prime condition, she added.

RBI on Friday said the banking sector remained resilient in terms of its assessment, and bank exposures to companies were well within norms. This came amid concern over lenders’ financial health due to the stock rout in the Adani Group.

Earlier this week, the Life Insurance Corporation (LIC) said that it is studying Adani Group’s response to the US research firm and will engage with the Group for further clarification. LIC clarified that it has an investment of Rs 36,474.78 crore in the Adani Group by way of equity and debt as of last month.

Even State Bank of India (SBI) management has clarified that the bank’s loans to the Adani Group were 0.88 per cent of its total loan book, which was around Rs 31 trillion. Further, the loans are backed by tangible assets and cash flow, and the bank has not extended any loans against shares.

The banks’ chairman has categorically stated that they do not envisage any kind of challenge in terms of the group’s ability to service their loan obligations.

Banks have an exposure of Rs 80,000 crore to the conglomerate, with the SBI leading the pack with Rs 27,000 crore. On Wednesday, the regulator asked banks to give information about their outstanding exposure to the group and the sanctioned amounts.

Meanwhile, the finance minister explained that the proposal to tax income from high-value savings-oriented life insurance policies would not impact the penetration of insurance in the country. This proposal is not targeting pure insurance products. Rather, it is targeting investments which are made in the garb of insurance, said TV Somanthan, Finance Secretary, Ministry of Finance.

We have evidence that this is becoming a tax avoidance device, whereby people are using the clothing of insurance to obtain high tax free incomes, he added.

Somnathan also explained how the government intends to achieve the fiscal target of 4.5 per cent in the next few years. The strategy to reach it will involve a combination of three things. First, sustained high revenue growth with decent buoyancy.

On the expenditure side, we are hoping to have sustained strict control over avoidable and unproductive expenditure. And through the various measures that have been taken in the budget, we want to keep the denominator growing fast, he said.

Commenting on the issue of inclusion of India’s government securities on global bond indices, Ajay Seth, DEA Secretary said, “At the moment, there is quite a bit of uncertainty at the global level both in terms of the exchange rate and interest rate etc. It is not the right time to press the pedal on that aspect. When the global markets are a little bit more uniform, then at that point of time this piece will have to be picked up again”.

“In respect of the bond index inclusion, for a country like India inclusion in the bond index has obvious positives but it also has some not so obvious negatives in terms of increased volatility, increased vulnerability to decisions taken abroad which have no connection to the domestic economy”, Somanathan said.

”We will not change our domestic policies to suit foreign investors. Policy decisions will be taken based on India’s needs. If that is acceptable to them, they are welcome to let us inside the club. But in order to get into the club, there will be no bending over backwards or changing our sartorial garb etc. we will go on our terms is the general approach that india takes in these matters”, he added.